Wednesday, 3 March 2010

Hey, Labour MPs, why not support GST off food?

by Vaughan Gunson

I was scrolling down Scoop's top 30 stories for the day and got quite excited by this headline: "Labour Wellington MPs want to Axe the Tax". What tax? Must be GST. I'd better read on.

Yes, Wellington Labour MPs do want to "Axe the Tax", but they only mean the portion that National is planning to increase GST by, from 12.5% to 15%. I should have known not to get too excited by a headline. Never-the-less, Labour MPs are getting out there in response to the groundswell of public opinion against any hike in GST.

Judging by the language these Labour MPs are using and the basic food examples in their media release, it would be reasonable to assume these MPs would support removing GST from food. A demand that's proven to be hugely popular with people (see the front page story in the Whangarei Leader for a snap-shot of the mood on the street: Take GST off food, 16 Feb).

Connect with this grassroots mood and you've got a campaign that could undermine the whole neo-liberal tax structure. A mass campaign for GST-off-food would, if successful, be a mortal blow to one of the pillars of neo-liberalism, as GST certainly is.

But Labour has so far been very reluctant to embrace this popular demand. Is it because GST-off-food strikes at the very heart of neo-liberalism? To roll back GST would mean campaigning against the powerful proponents of this regressive tax: the big corporates operating in NZ. Is this a step too far for the Labour Party leadership?

Phil Goff says Labour won't support Maori Party MP Rahui Katene's private members bill to remove GST from healthy foods. And Goff won't even commit to reversing National's GST increase if Labour were the government. What does this mean for the "Axe the Tax" bus? Does it get parked away after the Budget in May?

Prime minister John Key has challenged Labour to campaign on reversing the GST increase at the next election. Key has framed the debate in these terms: you either have an increase in GST or an increase in personal income tax. This has put the Labour leadership in a bind.

But only if Labour wants to accept how the debate is currently framed, because there are circuit-breaking options. Most clearly, a Financial Transaction Tax (FTT), or Robin Hood Tax, as it's been so-named by the campaign originating in Britain.

Instead of the GST-income tax trade off, let's target the mega-wealthy. A small percentage tax on financial transactions (say 0.5% or 1%) would raise billions of tax revenue from the banks and other big corporates, including the global financial speculators who buy and sell the Kiwi dollar, one of the world's most traded currencies. (For more on why a FTT is an idea whose time has come, read these recent articles by John Minto, Finlay MacDonald and Barry Coates.)

So a circuit breaker for Labour MPs exists, but do they have they have the guts to take it? A tax on financial transactions would hit the big banks and other global financial overlords that have run amok with the world economy since the mid-1970s. In campaigning for an FTT you're buying a fight with some powerful global forces. 

But it's a fight that must be fought if any kind of tax justice for grassroots people is to be achieved.

With the banks and other financial "fat cats" on the back foot following the financial implosion and their widely perceived role in causing it, there's an opportunity to go on the offensive. That's not to underestimate the size of the task. To roll back GST and force the introduction of a FTT would require serious and sustained campaigning by broad forces, in order to win the active support of the majority of New Zealanders. So that when the inevitable opposition from powerful political and economic forces comes there's a mass base from which to push the cause of tax justice.

Is Labour going to be part of this struggle, or not? Will the axe stay out, or will it be left in a cupboard in one of the corridors of parliament?

Here's a challenge to Labour: why not keep the axe out and support the campaign to remove GST from food, which would be a decisive first step towards tax justice in New Zealand.

So Labour Party people, what do you say?

Labour Wellington MPs want to Axe the Tax
Tuesday, 2 March 2010
Press Release: New Zealand Labour Party

“Balancing your budget and having something left over at the end of the week isn’t easy for a lot of Wellington families and higher prices won’t make that easier. The National Governments proposed increase in GST will push many Wellington families into further hardship" say Labour MPs Annette King, Grant Robertson, Trevor Mallard, Charles Chauvel, Chris Hipkins.

Labour Party MP’s have been travelling down the country on the “Axe the Tax” bus – protesting against the National Governments proposed increases to GST.

The bus will be in Wellington on Sunday 7 March.

“If GST goes up, increased prices are a certainty. That’s not good news for the 50 per cent of New Zealanders who didn’t get a wage or salary rise last year while prices went up,” says Labour list MP Charles Chauvel. “Fifteen per cent GST means a twenty per cent increase in the tax on the basics.”

MP for Wellington Central, Grant Robertson said “An increase in GST means Wellington residents will face 20 per cent more tax on bread. 20 per cent more tax on milk. 20 cent more tax on electricity and petrol. 20 per cent more tax on rates. And 20 per cent more tax on a block of cheese.”

“High GST means higher prices. Cost of living is already an issue and this just makes things worse, even worse than that is the fact that no one voted for an increase to GST,” said Hutt South MP, Trevor Mallard

Annette King, Deputy Leader of the Labour Party and MP for Rongotai said “Under National’s package, people on the top incomes will get more then lower income earners. Does that sound fair to you? People on the bottom of the heap, the minimum wage, got a huge 25 cents an hour more earlier this year – enough to buy a family size pack of Weetbix. As for the rest of the population, you’ll also get more than National promised – more GST and higher prices.

Labour opposes unequivocally the increase in GST. Labour wants fair tax changes that benefit everyone. “If we tell the Government No now, then we can still stop the GST rise,” says Chris Hipkins, MP for Rimataka.

All four of the Wellington Labour MP’s agreed that “We can make the tax changes fairer, and look after the many, not the few”.


Unknown said...

A better approach for Marxists might be to call for the abolition of GST and all other forms of indirect taxation and explain why capitalists prefer these kinds of taxes to income and company tax. (Namely, they are deductions from the pay workers receive to cover necessary labour-time whereas income tax, including workers’ income tax, generally comes out of surplus-value.)

That approach might advance the cause of workers’ political education and emancipation, rather than populist calls for GST off food. In effect, your call for GST off food is no different from Labour’s view that GST should be 2.5% less than what National might think it should be.

Dumbing things down hasn’t brought SW political rewards – perhaps it’s time to critically rethink this entire approach. . .


Richard McGrath said...

Labour's 'Axe The Tax' sign on its bus is fraudulent - it has no plans to axe GST.

I suggest abolishing GST and giving workers a tax break - the first $50k of income should not be taxed.

But government, in turn, has to learn to live within its means.

Anonymous said...

There are huge complex issues involved with GST and food, not least of which is that having GST on food catches all those people who do NOT pay tax - the wealthy who hide their money in trusts, the blackmarket (cash only jobs),the doperunners, etc - don't pay tax, but do have to eat - and GST on their food ensures they do pay some tax.

Vaughan said...

I don't agree that it's complex actually. GST is a regressive tax simple as that, so every attempt should be made by the left to undermine it and in the longer term phase it out. Despite the examples you give the overwhelming impact of GST on food is that it makes food more expensive to grassroots people. The fact that we tax food seems to me something out of the Middle Ages. NZ is one of the few countries in the world that does, and most New Zealanders think it's dumb. So why not listen to that sentiment and shift the whole tax debate in progressive directions?

The strategy is to relate to the concerns of grassroots people and campaign for GST to be removed from food, and in doing so raise the necessary alternatives that will tax the rich, the banks, companies, more. A Financial Transaction Tax, for instance, would net those people who hide their money in trusts. So I think the objections that the Labour leadership has been making to removing GST from food are not so much about the complexities involved (which are easily overcome), but about whether there's a fundamental shift in NZ away from neo-liberal tax policy, of which GST is a linchpin. It seems that the Labour leadership doesn't want to be part of that struggle, hence dismissing GST off food as "too complex", etc.

If Labour wanted to be part of the struggle against neo-liberalism they would embrace GST off food and welcome the political challenges that would flow from that first step.

Anonymous said...

OPINION: Buried in the small print of the tax working group's report to the Government is a startling statistic.

About $200 billion is invested in the rental property market, almost four times the capital value of the stock exchange. Yet, in 2008, property investors collectively paid no tax. In fact, they were able to claim tax losses of about $500 million to offset against other earnings.

That is not fair. Nor is it fair that a sample of 100 of the richest New Zealanders shows that only about half are paying the top tax rate. In other words, some wage and salary earners earning $75,000 and $80,000 a year are paying higher rates of tax than millionaires able to afford the services of clever tax accountants.

It is also not fair that a handful of families with household incomes in excess of $150,000 have been able to restructure their affairs to make themselves eligible for Working for Families handouts.

None of the inequities detailed in the working group's report is fair, but even more importantly, they are not efficient. In the words of the working group, the current tax system is "incoherent, unfair, lacks integrity, unduly discourages work participation and biases investment decisions". Or, as working group chairman Bob Buckle put it even more bluntly: "The tax system is broken and needs to be fixed."

The group, members of which comprised most of the country's leading tax experts, could not agree on a single set of recommendations, but came up with several different ways in which new property taxes could be used to offset reductions in personal, trust and company taxes. It also suggested increasing the rate of GST.

Its recommendations have been met with predictable outrage by property investors as well as lobby groups and political parties, who fear that its proposals will increase the income gap between rich and poor.

However, the Government cannot afford to cosset landlords at the expense of other taxpayers. Nor can it afford to allow New Zealand's personal and company tax rates to get any further out of whack with Australia.

A mature debate is required. Yes, higher income earners benefit most from tax cuts, but that is because they, or those who have not been able to restructure their affairs anyway, pay the most tax. According to the working group, the top 10 per cent of taxpayers pay 76 per cent of net tax. Working for Families credits mean a huge number of lower-income families effectively pay no tax.

That is as it should be, but there is a limit to how many feathers can be plucked from the goose before it points its beak northward. DomPost 22.1.10

Lanthanide said...

If Labour were to campaign on a FTT, you can bet that Key will trot out his "well I used to work in the financial industry, so I know that was Labour is proposing will be bad for the country".

That'll instantly sow the seed of doubt into the same people that voted for Key the first time, and could potentially cost Labour the election - if their "circuit breaker" argument is neatly skewered by that Nice Man Mr Key.

David said...

I don't think it would help Key at all to point out that he got very rich by working in banking and finance, especially if the issue was a FTT. what's he going to say, "No you can't tax these people, they're my mates - you'll all have to suck up a GST rise instead." Don't think that will help his image.